News Releases

New emission reduction target could be very costly

6 July 2009

New economic analysis done for the Greenhouse Policy Coalition shows that the emission reduction targets being called for by Greenpeace of a 40% reduction by 2020, would come at a very high cost for every New Zealander, potentially reducing every person’s income by $3,200 by 2020 and doubling the price of energy.

Analysis by economic consultancy Infometrics shows that the carbon price would have to be extremely high to reduce emissions by 40% relative to 1990 emissions. Even at $500/tonne domestic emissions would still exceed a 40% reduction target, requiring the purchase of 8.7 Mt of carbon on international carbon markets.

In addition, at $500/tonne each real gross national disposable income per person reduces by $3,200, and wholesale prices for petrol, gas and electricity double. At lower prices of carbon, there is less domestic emission reduction and more carbon units would need to be purchased on the international carbon markets.

Adolf Stroombergen, chief economist at Infometrics concluded that the price of carbon would need to be extremely high, possibly up to $800-900/tonne, for New Zealand to reduce emissions 40% below 1990 levels if no step-change technologies were available for widespread adoption. However at high carbon prices he expected there would be changes that the model did not readily capture.

“At high carbon prices one would expect that some industries would close completely (rather than substantially reducing output), there would be step changes in consumer behavior, such as how they travel to work, farming would change, and more trees would be planted.”

Adolf Stroombergen noted that 2020 was only eleven years away, and that was not a lot of time for new technology to be developed and widely deployed.

Executive Director of the Greenhouse Policy Coalition, Catherine Beard, says it is important that as the government kicks off a debate about future emission reduction targets in the near term, it is informed by economic analysis on how much various targets will cost.

“Advocates for high emission reduction targets in a short period of time should be clear about how much this will cost New Zealanders. With a growing population, a high percentage of renewable electricity and 70% of our emissions coming from agriculture and transport, there are few low cost abatement opportunities in New Zealand in the short term”.

“These are not targets we can just aspire to, but firm commitments that will come with a hefty price tag if we cannot deliver”, she concluded.